Factors Impeding the Poverty Reduction

Capacity of Micro-credit: Some Field Observations from Malawi and Ethiopia

By Sunita Pitamber
Senior Gender Specialist
Agriculture and Rural Development Department
African Development Bank

Abstract

In most African countries women tend to account for an average 51% of the population, and make up about 65% of the
rural labour force. Thus, many rural based micro-finance programmes have attempted to address the women specific
need for micro-credit. This paper analyses the effectiveness of micro-credit as a means to reducing poverty, with
particular focus on women, and demonstrates, through the critical analysis of some country-specific examples, that the
use and supply of micro-credit does not always lead to a sustainable impact on household or female poverty reduction.
Analysis of findings are done based on field data, interviews, and observations from Malawi and Ethiopia.

The paper has concluded that while MFIs aim to reduce poverty and empower women there is usually no clear
implementation mechanism to achieve these aims. Some of the conclusions of the paper are: the inadequate and
insufficient participation of the female clients themselves in the design of the programmes affects the levels of poverty
reduction; the inability of certain commonly used indicators of success/failure of micro-credit in measuring the non-
quantifiable impact of the programmes on the clients; there are certain undesired effects of micro-credit delivery, which
may hinder the process of poverty reduction; MFIs target women mainly due to the fact that the lending characteristics
of the rural micro-credit are best suited to female clients, rather than male clients. Moreover, the empowerment process
which is assumed to occur as a result of these loans, is impeded by the micro size of the loan, the small returns from
the use of the loan, and the fact that the returns themselves are still not always the major contributor to the family
income as compared to the male income. Furthermore, the paper argues that it is a misconception that an MFI always
targets the ultimate poorest of the poor, the landless, the assetless, and the destitute, because, as the paper has
demonstrated that for an MFI such a client profile will not ensure returns and increase profits, and it is precisely such a
beneficiary profile that is unattractive and unlikely to become a potential client. The changing policy environment, thus,
puts more pressure and competition for the scarce resources between the poorest of the poor and the “not-so-poor”.
This paper has highlighted the fact that since development interventions put greater focus on promotion of, for example,
export markets and international trade, and medium scale farmers and entrepreneurs, the actual micro-credit clients are
not the typical ‘hand-to-mouth’ poor.

Finally the paper gives broad recommendations for further research and analysis in order to strengthen the capabilities
of micro-credit for poverty reduction. Furthermore, the analysis in this paper also provides the way-forward in the design
of future micro-credit interventions for poverty reduction as well as gender and empowerment.
Résumé

Dans la plupart des pays africains, les femmes représentent en moyenne 51% de la population, et fournissent
environ 65% de la main d’œuvre paysanne. C’est pourquoi les programmes de micro- finance axés sur le monde
rural ont pour la plupart porté sur la satisfaction du besoin spécifique de micro-crédit observé chez les femmes. Le
présent article se penche sur l’efficacité du micro-crédit en tant que moyen de réduction de la pauvreté,
essentiellement chez les femmes et démontre, à partir d’une analyse critique des exemples vécus dans des pays
précis, que l’utilisation et l’octroi du micro-crédit n’exerce pas toujours un impact durable sur la réduction de la
pauvreté des ménages ou des femmes. Cette analyse se base sur des données, des entretiens et des observations
recueillies sur le terrain auprès des populations au Malawi et en Ethiopie.

Le présent article est parvenu à la conclusion suivante : alors que les IMF visent de réduire la pauvreté et de
responsabiliser les femmes, elles ne disposent pas la plupart du temps de mécanisme clair pour réaliser ces buts.
L’article relève en outre : l’insuffisance qualitative et quantitative de la participation des femmes elles-mêmes à la
conception des programmes affecte les niveaux de réduction de la pauvreté ; l’incapacité de certains indicateurs de
succès/échec de micro-crédit communément utilisés pour mesurer l’impact de ces programmes sur les clientes ;
certains effets indésirables de l’octroi de micro-crédit rural qui peuvent entraver le processus de réduction de la
pauvreté ; les IMF ciblent principalement les femmes en raison du fait que les spécificités du micro-crédit sont plus
adaptées à la clientèle féminine qu’à la clientèle masculine. De plus, la prise en charge vers laquelle ces prêts sont
censés conduire les femmes est entravée par la modicité de ces prêts et des gains qui résultent de leur utilisation, et
par le fait que ces gains ne constituent toujours pas l’essentiel du revenu familial contrairement aux revenus des
hommes. Par ailleurs cet article affirme que c’est une idée fausse de penser qu’une IMF choisit toujours pour cible
les plus pauvres parmi les pauvres, les sans-terre, les démunis, et les indigents, parce que, comme l’a démontré
l’article, pour une IMF un tel profil-client ne peut assurer la rentabilité et accroître les bénéfices, et c’est précisément
ce profil de bénéficiaire qui présente peu d’intérêt et de chances d’aboutir à une clientèle potentielle. Ainsi face à la
modicité des ressources, l’environnement stratégique en perpétuelle mutation renforce la pression et la concurrence
entre les plus démunis et «ceux qui le sont moins». Cet article a mis l’accent sur le fait qu’étant donné que les
actions en faveur du développement sont davantage orientées vers la promotion des marchés à l’exportation, du
commerce international comme des exploitations agricoles et des entreprises de taille moyenne, les vrais clients du
micro-crédit ne font pas partie de la catégorie de pauvres qui vivent «au jour le jour».

Enfin, l’article recommande d’aller plus loin dans les recherches et les analyses en vue de renforcer les capacités du
micro-crédit à réduire la pauvreté. De plus, l’article dans son analyse encourage à concevoir de nouvelles
interventions de micro-crédit pour réduire la pauvreté, et aider les femmes à se développer en se prenant à charge.
Factors Impeding the Poverty Reduction Capacity of Micro-credit: Some Field Observations from Malawi and
Ethiopia*

By Sunita Pitamber

Introduction

Poverty reduction has been identified as the overarching long term goal for most of the development interventions in
Africa, and more recently crystallised in the Millennium Development Goals and the New Partnership for Africa’s
Development (NEPAD). In Africa, more than 40% of its 750 million people live below the internationally recognized
poverty line of $1 a day, and the evidence is even more worrying for sub-saharan Africa. The number of poor people
has grown relentlessly, causing Africa’s share of the world’s absolute poor to increase from 25% to 30% in the 1990s
(UNDP, 2001 and 2002). However, Africa’s development challenges go deeper than low income, falling trade shares,
low savings, and slow growth. They also include high inequality, uneven access to resources, social exclusion, and
insecurity, especially amongst women. While some African countries are showing promising economic progress and
are making notable strides in addressing major development constraints, such as Uganda, the majority of the
continent is still under great stress to meet the human survival needs. More specific concern is raised due to rural-
urban disparities in income distribution, access to education and health services, and prevalence of ethnic or cross-
boundary conflict. In particular, the most outstanding factor is the gender disparity in access to resources, such as
land, credit, technology, markets and production information and skills development.

In most African countries women tend to account for an average 51% of the population, and make up about 65% of
the rural labour force. In addition, women tend to shoulder the greater burden of child and family welfare, social and
community obligations, engaging in more than one economic activity as well as undertaking domestic chores. In
connection with the growing emphasis on poverty reduction sustainably, micro-credit has been recognized as the
most necessary and ‘the missing ingredient’ which is most effective in reducing poverty of the poorest of the poor
(Otero and Rhyne, 1994; Khandker, 1998). Thus, many rural based micro-finance programmes have attempted to
address the women specific need for micro-credit. Female entrepreneurs and micro- credit borrowers tend to face
greater constraints than men such as socio-cultural barriers, legal and structural constraints, higher rates of illiteracy,
inadequate experience in credit management, and constraints related to collateral, marketing, inputs, production
technology, to name just a few.1

1
The author would like to express her gratitude to Dr. Mohammed N. Hussain for his valuable comments and observations on this paper. She would also
This paper analyses the effectiveness of micro-credit as a means to reducing poverty, with particular focus on
women, and demonstrates, through the critical analysis of some country-specific examples, that the use and supply
of micro-credit does not always lead to a sustainable impact on household or female poverty reduction. This will be
done through the analysis of the micro credit delivery mechanisms and related conditions of the micro-finance
institutions (MFIs) projects and programmes.

This paper uses the term micro-credit and micro-finance interchangeably. The methodology used in this paper is
field observations, in addition to interviews and discussions with micro-credit delivery officers as well as clients in
Ethiopia and Malawi. The field investigations were carried out at different points in time during the period 2001 and
2002.

Poverty Measurements and Relevance of Micro-credit

Some recent studies on poverty have attempted to put forth terms and classifications of the very poor in a way that
will allow the reader to imagine the extreme helplessness, and a state of extreme destitute amongst the people
under discussion. The poorest of the poor, as they are more commonly referred to, have also sometimes been called
the ‘hardcore poor’ (Hashemi, 1997), the ultra-poor (African Development Bank, 2002) or the ‘chronic poor1 ’. While
this paper does not aim to re- define who are the poor, it will use the term ‘poorest of the poor’ to identify the group
of people who are economically on the outer edges of survival and managing to continue their existence and live
with or below an average $1 per day.

Poverty is commonly defined as ‘the inability to attain a minimal standard of living’ measured in terms of necessary
basic needs and services. Furthermore, the concept of a ‘poverty line’ has internationally become accepted as an
indicator of poverty which measures the monetary amount needed to purchase a basket of estimated minimum
calorie intake and the social services needed to live a healthy life, below this estimated line an individual or
household is considered poor (African Development Bank, 2002; Lipton, 1997). Poverty is therefore characterized by
the inability of individuals and households to acquire sufficient resources to satisfy their basic needs. Furthermore,
poverty is not static. Research shows that some people may be suffering from poverty from time to time, while
others are permanently poor. Therefore, poverty within the present discussion is identified to indicate when the ‘net
outcome’ of the process of change experienced by an individual or household is socio-economically negative or
unchanged, also sometimes referred to as ‘vulnerability’ status. (UNDP, 2001, Glewwe and Hall 1998; Grooteart and
Kanbur 1995).

In view of the recognition that poverty was contextual, that it was not static, and that it was relative, micro-credit was
introduced as a mechanism for the poor to pursue poverty reduction activities which were within their means and
capacities (von Pischke, 1996). Micro-credit programmes were meant to help the poor generate income and
alleviate poverty sustainably (Chao- Beroff, 1999). It became an important development concept since the 1980s,
especially after the many publications and reports on the positive experience of the Grameen Bank.

The Grameen Model (Yunus, 1989), which made micro-credit even more popular, specifically for women, and
included for the first time a community approach to poverty reduction and challenged serious obstacles to borrowing,
such as collateral, male guarantor or co-signer for female clients, and repayment modalities. A further development
took place in this model through some experiences in Latin America, such as that of Americans for Community Co-
operation in Other Nations (ACCION), which introduced a business approach to micro-credit, through cost-recovery
and management as well as individual lending within the group (Berenbach and Guzman, 1999). Therefore, micro-
credit evolved further into a development and poverty reduction mechanism based broadly on the Grameen model
and other local experiences. The most commonly found micro-credit delivery channels in the low-income African
countries are: profit making micro-finance institutions, credit unions, and village banks (Holt, 1994). However, it is the
MFIs that most of the time have a better rural and urban outreach network and more money to inject, due to their
access to multiple fund sources. The discussion will attempt to highlight the differential impact on poverty reduction
and will give analytical perspective on micro-credit panacea.

Women and Micro-credit

Since the establishment of the Grameen Bank as a micro-credit delivery model, many programmes have rushed to
replicate the relative success and in doing so, a lot of attention has been given to female micro-credit borrowers.
Women were specifically targeted because they make up the majority of the poorest of the poor in the rural areas
and are responsible for the social and economic welfare of the family. During the 1990s micro-credit was seen as
successful amongst female clients because of high repayment rates and savings capacities. Furthermore, at the
same time many Non-Governmental Organisations (NGOs) and donor’s were dictated by gender policies which
specifically called for increased micro-credit outreach to women, and these micro-credit programmes did not limit
their desired impact to poverty reduction only, but extended it to achieve women’s empowerment (Khandker, 1998;
Kabeer, 1998).

like to thank Dr.

Bakri Abdul Karim for his extensive assistance in providing some of the relevant background literature.
Generally most micro-credit programmes, and specifically those aimed at women, aim to reduce poverty for women
and also empower them by enabling them to have their own income and capital. However, there is very little
empirical evidence that micro-credit will directly empower women (Zaman, 1999). Empowerment, as a concept, is
highly contextual and changes from one environment to another, whereas micro-credit delivery process is applied in
almost the same way in most countries. This paper will attempt to illustrate that poverty reduction and women’s
empowerment are not the one and the same and that poverty reduction does not automatically lead to women’s
empowerment. The following paragraphs will elaborate on this process.

In order to achieve women’s empowerment, there must be a change in gender relations. Although definitions and
understanding of empowerment vary, the broader guiding milestones are generally agreed to be: increased access
to and control over resources, and specifically income, greater participation in decision-making in the household and
over her body, improved negotiation capacity and greater mobility.

Mayoux (2000) explains that there are three underlying paradigms in the debate on micro-finance and gender and
empowerment. The financial self-sustainability paradigm emphasises the need to provide self-sustainable financial
services to the rural people, especially micro-entrepreneurs. This is usually seen in the different manifestations of
the village bank model and the Rural Organisation of Savings and Credit Associations (ROSCAs). The assumption
here is that women’s access to these services will lead to economic empowerment thereby automatically enabling
her to have decision making powers, increased mobility, etc. because it is assumed that power is derived from
income. However, this is understandably a weak link between micro-finance and women’s empowerment because
other evidence from India and Bangladesh shows that women still tend to give up their credit and any resulting
income to the male, either voluntarily or forcibly (see Hunt and Kasyanathan, 2001; Mayoux 1998; Mosley and
Hulme, 1998).

The second paradigm explained by Mayoux (2000) is called the poverty alleviation paradigm which is manifested in
increasing outreach and access to the poor, providing small loans for consumption and production, savings facilities,
group formation and training in some of the related aspects. In this paradigm women are targeted mainly as the
poorest of the poor segment of the population and also the one’s who are directly responsible for family well-being.
The assumption here is that by increasing women’s access to credit, and thereby increasing their income, a positive
impact on household income will occur. This will further contribute to better family well-being and improved status
and position of the female in the home, thus empowering her further to negotiate other forms of change in gender
roles and relations.

There are a number of issues within the women’s empowerment framework which affect the assumed outcome
under this paradigm. Firstly, the size of the loans does not enable the women to make any long lasting income
change for the household, at most the woman’s income will complement other sources of income, such as from the
children or the husband. In the African context, this analysis sheds new light because in a household where both the
male and female are present, and where a negotiation of gender roles is necessary for empowerment, the micro-
loan does not result in a high female income, in most cases the husband’s income is still the major contributor to
household expenses. Secondly, the increased access to credit in the same geographical area could contribute to
market saturation of products provided by women. This is mainly because poor women generally tend to operate in
the same kinds of businesses, such as food vending, petty trading etc. and also operate from the same local
markets. This process reduces the resulting income for each woman and increases competition in an already limited
market. Thirdly, some evidence (see Kabeer 1998) suggests that in such circumstances a woman’s successful
business may have a negative impact on the girl-child who may be required to leave school to help the mother
expand the business. Thus, the micro-finance link to gender empowerment under the poverty alleviation paradigm
cannot be assumed to occur naturally or automatically.

Mayoux’s (2000) third paradigm for the micro-finance and gender debate is called the feminist empowerment
paradigm, which underlies many of the gender policies of NGOs and donor agencies. Micro-credit, under this
paradigm, is seen as an entry point to negotiation and change in other more broader issues of gender equality and
women’s rights. This paradigm is geared more towards addressing the social and/ or political empowerment issues
because its implications touch more upon the strategic needs of women. To a certain extent they also touch upon
the economic-class stratification of women who may benefit under this paradigm and bring about the perceived
change in gender relations and women’s empowerment.

While it is not possible either to identify or to design a micro-credit programme neatly into any one of the above
paradigms, it is worth noting at this time, that most MFIs and other donor- driven micro-credit programmes fall within
the first two paradigms mentioned above. Moreover, despite the lack of clear and convincing evidence of micro-
credit’s ability or inability to sustainably reduce poverty, more and more funds are still being put into similar micro-
credit programmes. Despite the popularity of micro credit as a poverty reduction mechanism, there is very little
evidence indicating a real positive net effect on poverty reduction (Mosley and Hulme, 1998; Wright and Dondo,
2001). Measurements and indicators of client numbers, repayment rates, increase in total loan amounts and
portfolio, and sometimes savings rates are misleading and may not automatically result in increased income for the
household or the client.
Institutional and Operational Arrangements of Micro-finance Institutions

A large number of MFIs have set-up networks in many African countries taking advantage of increased pressure on
governments to deregulate the economy and the financial sector, encourage competition in all sectors, and create
the conducive environment for increased production. Thus, micro-finance delivery has become an attractive
business over the last decade in Africa. Some of these MFIs are local based, while others are either regional or even
international. Most of the MFIs are specialised in the delivery of small loans to a wide range of clients, and specially
the “poorest of the poor”. MFIs encompass different kinds of organisations, such as limited companies, para-statals,
in addition to those legally registered as MFIs (Magill, 1994). Experience shows that some MFIs may also channel
delivery and recovery of funds through other existing banks with whom they may have an operations agreement.
Thus such MFIs, may not directly be involved in loan disbursements, repayment collection, or business monitoring,
etc.

MFIs operate in a niche market because they address the needs of those clients who are considered
‘high-risk’ by bigger banks. High-risk groups or individuals are characterised as those with very few assets, requiring
very small loans, high degree of close follow-up, business appraisal and evaluation, as well as those engaged in
activities whose income is fluctuating such as small-holder farmers or petty traders. Thus, the MFIs cater for a
market with an operationally acceptable demand level and where clients can be protected from the unreasonable
conditions of the informal money- lenders.

Such MFIs, however, charge high administrative costs and higher charges for risk coverage, which is in addition to
the market interest rates, and taking advantage of the niche market for micro loans. Both in Malawi and Ethiopia,
field observation suggests that, other than agriculture credit, repayments are required to start immediately, starting
the week after the loan has been disbursed, and repayments are in weekly instalments. Lending is done on group
basis and also on individual basis. In most cases clients are expected to form their own groups before approaching
the MFI for a loan and those who perform well can later be eligible for individual loans. Some MFIs have their own
training modules which a potential group or individual client should undergo. The training may be implemented by
the MFI credit officers, or the local community development officers for an incentive payment.

Field observations show that most MFIs in Malawi and Ethiopia can be categorised as profit oriented, with a clear
business approach, with a good network into the rural areas, and with minimum expenditures on training or group
mobilisation allowing for high repayment rates with minimum risk exposure. Discussions with different stakeholders
revealed an underlying assumption that simply the existence or operations of an MFI in an area will automatically
address poverty. MFIs, on the other hand argue that they are not required to and do not always have the
responsibility for justifying whether their activities reduce poverty. Some MFIs have, however, undertaken impact-
analysis studies on a need-basis which reveals that income has been increased amongst their clients. Nevertheless,
this is very much anecdotal and limited to some cases and cannot be proven or established as long term trend.
Micro-finance Policy and Development Framework

Malawi

In Malawi poverty is more persistent in the rural areas at about 65.3% of the population. The recent poverty profile
(National Economic Council, 2000) suggests that these poor are characterised by malnutrition, lack of income
earning opportunities, and unfavourable production environment. Female-headed households, which are estimated
to be about 35% nationally, are consistently poorer than male-headed households, and are mainly engaged in
subsistence farming and petty trading activities.

Available information shows that although there has been an increase in the number of institutions offering micro-
credit in Malawi, to date about 29, the main constraint to affordable access is the high interest rates in the country.
The second constraint is the high inflation rates which restricts long-term lending. Moreover, the exorbitant interest
rates (up to about 60%) and high inflation make it difficult for the rural poor to save after borrowing funds for
production. This contributes to weakening the rural poor’s purchasing power and thereby intensifying their poverty
status. Another constraint to the credit sector is the involvement of the Government in some lending institutions
leading to the ineffective targeting of potential beneficiaries. Moreover the entry of new commercial banks is
hampered by the small size of the economy in the country. This affects the competitive environment necessary for
efficient delivery of credit.

The micro-finance sector in Malawi is not clearly covered by any specific legislation or regulatory policy, and is
therefore not supervised like other financial institutions. However, it is within the recent Highly Indebted Poor
Countries (HIPC) initiative to develop a Poverty Reduction Strategy paper (PRSP) that the present thrust to develop
a relevant policy framework at the country level has arisen. The main objectives of a draft Micro-finance Policy
(MFP) is to create an enabling legal and regulatory environment conducive to the development of micro-finance; to
improve coordination between implementing institutions, Reserve Bank of Malawi (RBM) and the Government of
Malawi (GOM); to promote the best practices among the MFIs, GOM and the donor community. Existing MFIs are
registered under different legislation such as a private company, or under the cooperatives act. The RBM which is
mandated to supervise all financial institutions, does not have the capacity to supervise or regulate all MFIs directly.
Table 1 gives a profile of some of the micro-credit initiatives in Malawi.

Ethiopia

Ethiopia is the second most populous nation in sub-Saharan Africa with approximately 63 million people and almost
44% of the population being in the age of 15 years and below. Ethiopia ranks
158 out of 162 countries in the Human Development Index (UNDP, 2001a). Its per capita income of US $ 110 is
roughly one quarter the average for Sub-Saharan Africa. Poverty in Ethiopia is more persistent in the rural areas and
specially amongst the agriculture households. The average size of poor rural household tends to be larger and
approximately 20% of rural households are female headed. Thus, women-headed households are more vulnerable
as they traditionally have less access to land and other productive resources. Most rural households depend on
agriculture as their primary source of income but lack essential social infrastructure, such as roads, education and
primary health care facilities, safe drinking water supplies and fuel. Furthermore, increase in
Table 1: Micro-finance Initiatives in Malawi with a wide rural-poor outreach
Organisation Loan Repayment Products and approach
Portfolio Rate

Government Initiatives
Economic Activities
Programme (EAP) Approx. Euro 2.3N/ A EAP delivers donor interventions in training on micro-
– Ministry of million finance management and entrepreneurship
Gender (1993) development, training of women and youth in business
management and skills development.

Small and Medium(MKW 10043% Ministry of Commerce and Industry for support of rural
Enterprise Trust Fundmillion). Approx. and urban poor who do not qualify for small loans with
(SMEF – Euro commercial banks and institutions. The Fund was
1995) 1.2 million allocated to be administered by the Reserve Bank of
Malawi (RBM). The experience was not successful due
to: (1) the subsidised interest rate of 15%, (2)
interference from politicians and other authority figures
as to who should get the loans.

Entrepreneurship (MKW 3.260- This initiative is supported by UNDP which has

Development andmillion). Approx.90% provided funds to several NGOs to on-lend micro-
Employment CreationEuro credit, provide training in credit and
Programme (1999)41,000 business management skills as well as technical skills.
Ministry of Commerce
and Industry.

Commercial
Banks
The National Bank of
Malawi (NBM) and theUS $ 200,000 85% The NBM and the CBM operate under a Credit
Commercial Bank of Guarantee Fund sponsored by UNCDF and another by
Malawi (CBM) (1997) GTZ. The Banks are mainly involved in facilitating the
repayment of the loans, actual monitoring and follow-
up is out-sourced to NGOs. In case of default, the
respective Bank draws from the United Nations Credit
Development Fund sponsored guarantee fund
60% of the amount, confiscates the savings (20%
of the loan amount) and the respective Bank
bears the loss of the rest of the 20% of the default
amount.

Micro-finance (MKW 87%

Institutions (MFIs) The263,400,000).
Malawi Rural FinanceApprox. Euro The MRFC, registered as a private company, began
Co. (MRFC – 1994) 3.4 million. with an initial fund from the World Bank for agricultural
credit and from International Fund for Agriculture
Development (IFAD) for
non-agricultural credit meant for the poorest of the
poor. It has the widest rural outreach of all MFIs in the
country in year 2000. Loans are made at commercial
interest rates with monthly payments with an average
total repayment of between six to eighteen months.
Malawi Union of(MKW 23680% MUSCCO, modelled like a Village Bank, acts as a
Savings and Creditmillion). Approx. central finance and management facility to the
Cooperatives Euro community based Savings and Credit Cooperatives
(MUSCCO) 3 million. (SACCOs). A SACCO can be created initially by at
least 500 members with a minimum deposit of Euro
3,200 (MKW 250,000) after which makes it a
shareholder in MUSCCO. The SACCO system mainly
depends on lending from savings at interest rates
which cover their operating costs, usually in the range
of 51% to
67%.

Small Enterprise(MKW 18090% SEDOM was established as a Trust by the GOM with
Development Fundmillion). Approx. assistance from EEC in 1982. The aim of SEDOM is to
(SEDOM – 1982) Euro provide financial and technical services to support
2.3 million. MSMEs. For group loans
70% are women beneficiaries. Groups make monthly
repayments and usually are able to repay the amount
in 6 to 12 months. An average loan amount is Euro 65
(MKW 5,000) with commercial interest rates charged.

Foundation for(MKW 90 million).98% FINCA is an international organisation with

International Approx. Euro headquarters in USA and the regional office in
Community Assistance1.17 million Uganda. To date the organisation has 28,000
(FINCA – 1994) beneficiaries of which 20,000 are women.
FINCA uses the group based lending approach of
between 25 to 30 members, & requires weekly
repayments at an interest rate of about 72% per
annum.

Non- Governmental
Organisation Women’s
World Banking (WWB)

(MKW 26 million).76% WWB is operational in almost all districts of the

Approx. Euro country and aims to provide credit, training, and
337,000 market information to target beneficiaries. To date the
organisation has trained about 60,000 women, of
which 75% are rural, in business, technical and credit
management skills. The
organisation uses the group based approach for
lending at market interest rates.
National Association of(MKW 10 million).91% NABW targets only women through providing credit,
Business WomenApprox. business and credit management training, skills
(NABW – 1990) Euro130,000 development training, and policy advocacy
to promote favourable conditions for women’s
participation and empowerment. To date NABW has
trained 13,500 women, out of which 12,000 women
have received credit. Interest rate charged is 50%
annually flat rate.

Usiwa Watha (OI-(MKW 24 million).98% Usiwa Watha is supported by Opportunity International

UWCT – 2001) Approx. (USA) and targets mainly women and the poorest of
Euro 311,000 the poor. The organisation uses group based lending
with an average loan size of MK 9,500 with fortnightly
repayments at commercial interest rates. The
organisation has to date reached 3,000 people.
PRIDE AFRICA (MKW 9 99% Group lending methodology with shared guarantee and
Million). Approx. peer pressure. Average loan amounts are Euro 65 to
Euro 1,500 at commercial interest rates. The organisation
117,000. also promotes compulsory savings of 20% of loan
amount.
Project Hope (MKW 1.697% The organisation promotes micro-credit linked to health
million). Approx. education. It operates on a group lending methodology
Euro with household goods as collateral and at least 15% of
21,000 loan amount as savings. The average loan amount is
Euro 13 to 65 (MKW
1,000 to MK 5,000). Repayments are made fortnightly.

World Vision (MKW 20 million).93% The organisation gives individual loans through groups
Approx. Euro and no collateral is required. Average loan amounts are
259,000. Euro 40 to 195 (MKW 3,000 to
15,000) per individual. The organisation charges
commercial interest rates.

Note: MKW – Malawi Kwacha.

Source: Field data 2001 and 2002

other development challenges such as the HIV/AIDS, persistent malaria in the low lands, and other communicable
diseases is expected further to increase poverty levels in Ethiopia.

The origins of MFIs in Ethiopia is largely rooted in their NGO past with a clearly defined mission of rural poverty
eradication. A Government decree in 1996 established the licensing and supervision of MFIs as ‘share companies’ in
accordance with the Commercial Code of Ethiopia. With a network of about 500 sub-branches and branches, the
MFIs have expanded their outreach to many of the regions where the incidence of poverty is highest. As of January
2001, MFIs in Ethiopia had made loans to and mobilized savings from about 500,000 clients nationally. Some MFIs
have also started to offer other services such as managing pension remittances and money transfer services (IFAD,
2001; Negash et. al. 2002). At least 41% of the MFI clients, nationally, are women and in the majority from rural
households. However, discussions with some MFIs in Ethiopia revealed that the number of female borrowers was
continuously dropping for reasons which are yet unclear. MFIs have sustained high loan repayment rates, which
varies from 94-
100%. The high repayment rates are mainly due to the kind of loan products offered to women borrowers, which is
micro-loans with weekly repayments, and group pressure.

MFIs,,,,, Loan products and delivery mechanisms. The loan products among MFIs in Ethiopia generally follow the
Grameen model with some slight variations. Most of the MFIs have two types of loan products, namely loans for
on-farm activities, which are due in four to twelve months, and off-farm investments with more flexible repayments
on weekly or monthly basis (IFAD, 2001). On average, 60% of the MFI portfolio represents loans for on-farm
investments while income generating activities and petty trading accounted for about 40%. There are two types of
savings offered by MFIs, namely compulsory, which acts as collateral and will be withheld by the MFI in case of
default, and voluntary savings which the individual can withdraw at any time. Compulsory savings are the most
common and the interest rate on savings is about 6% per annum (Dejene, 1999). In comparison to Malawi, the
interest rates on loans in Ethiopia can be said to be at acceptable levels, and this is mainly because of the highly
controlled nature of the
Ethiopian economy and the inflation rate. Interest rates vary among MFIs ranging from 12.5% to
15% per annum, in addition to a loan application fee of about 2%.

The following table gives a profile of the MFIs in Ethiopia. Although, the performance of the micro finance sector can
be considered to be quite impressive, their current outreach is comparatively small compared to the number of poor
rural households living below the national poverty line.

Table 2: Outreach of MFIs in Ethiopia, January 2001 (amount in Birr million)

Micro finance Institutions Number of Proportion ofProportion of

Active Clients Women ClientsRural
(%) Clients (%)
Amhara Credit & Savings Institution S.C Dedebit Credit192 571 47 75
& Savings Institution S.C 187 550 41 80
Oromia Credit & Savings Institution S.C (OCSI) Omo 37 000 12 99
Micro-finance Institution S.C 39 342 35 95
Specialized Financial & Promotional Institution 3 700 80 1
Gasha Micro-financing S.C 3 217 85 0
Wisdom Micro-financing Institutions Sidama Micro-8 535 30 85
financing Institution S.C Mekket Micro-finance Institution4 286 60 90
S.C PEACE Micro-finance Institution S.C Addis Credit2 300 85 100
and Savings Institution S.C Eshet Micro-finance974 62 100
Institution S.C Wasasa Micro-finance Institution S.C 7 000 70 0
Asser Micro-financing S.C 516 54 70
Africa Village Financial Service S.C Buussa Gonofa 562 31 69
Micro-finance S.C Meklit Micro-finance Institution S.C 3 100 - 73
Benishangul Micro-finance Institution S.C Total 450 60 0
2 758 85 87
1 001 73 0
425 60 100
495 287 41 78

Source: IFAD (2001).

Community based organisations and the Informal Financial Sector

In Ethiopia only about 1% of rural households maintain bank accounts. Thus, the informal financial sector is one of
the most important sources of rural finance and accounts for about 78% of total agricultural credit (Dejene Aredo,
1993). The major sources of finance in this sector are relatives and friends (66%), and moneylenders (15%). In
Ethiopia, there are a number of commonly found community based indigenous savings and credit groups, which are
also widely used by women. One of the Community Based Organisations (CBOs), known as iqqub is an informal,
ad-hoc association organized by members for the purpose of pooling their savings in accordance with rules
established by the group. Members agree to deposit monthly or weekly contributions of a fixed sum with an elected
treasurer or, where accessible, in a bank. Lots are drawn weekly or monthly by turns and members in need can
purchase the winner’s lot by paying a premium.

The other common CBO is an iddir which is an informal association whereby savings are made primarily for the
purpose of covering the cost of funerals or weddings. A mehaber is an informal,religious association that draws its
members from the church to raise money for medical and burial expenses. In this sense, moneylenders are well
positioned, with terms and conditions that are quick, simple, convenient and flexible, for most accessible source of
funds for the rural poor outside of family and friends, albeit at an annual rate of interest as high as 245% or more.
Therefore, CBOs play a significant role in savings and beneficiary mobilization, and are considered to be effective
ways of targeting clients as some of the CBOs are uniquely controlled and owned by women.

Savings and Credit Cooperatives (SACCOs) are almost entirely urban based with membership largely drawn from
salaried employees and generally people who share a common purpose and locality. Currently there are about 670
urban SACCOs with approximately 150,000 members. Reportedly, these SACCOs have consistently performed
quite well largely due to their political and financial independence. Most of the SACCO members are men. Members
are required to save 3% to 5% of their salaries on a monthly basis. Borrowers are charged 1.5% per month and
savers paid the regular bank savings rate, which is currently around 6% per annum. All cooperative societies,
including SACCOs, are governed and supervised by the Regional Cooperative Promotion Bureaus.

Tenets of Micro-credit for Poverty Reduction

The following paragraphs will discuss some of the features which have been identified as best practices from
lessons learnt in micro-credit programmes over the last two decades. These features have been developed over the
years to make micro-credit accessible and manageable for the
‘poorest of the poor’, specifically women. Furthermore, it is through these features that it is expected that women
should be empowered.

Loan amounts and loan management

The poor and the socio-economically vulnerable population are generally risk-averse. They prefer to borrow small
amounts of money to meet a specific need, and do not like debt, lest they should lose even the few possessions that
they have, in case of non-repayment. Thus, MFIs have a unique characteristic, providing very small loans, that
makes them attractive to the poor and the vulnerable groups in Africa. However, in Ethiopia and in Malawi, field
observations show that women who borrow these small amounts, do so only to survive a particular time period,
usually an agriculture season. Discussions with MFI officers in Ethiopia revealed that women will borrow money and
put it into two or three smaller investments which will range from daily to weekly income generation. This practice
lasts for about four months which is the total repayment period at the end of which the borrower will return to her
mainstream economic activity, in most cases farming and/ or home-based agro-processing.

In Malawi, the female entrepreneurs and petty traders investigated, undertake a similar practice. These women were
not directly engaged in agriculture production and thus their loans were meant to be used as a business investment.
Again the female clients showed a risk-averse characteristic which influenced the amount they borrowed. A similar
pattern was observed in that a small portion of the loan itself was set aside to service the repayments. It was also
observed that in some cases the total loan amount would be used to meet an unforeseen crises in the family, thus
leaving the borrower and the family poorer and more exposed to external shocks. In order to correct this situation,
discussions with the female clients revealed that they would then turn towards the informal credit channels who
would give her more time for repayment but at almost 100% interest rates.

The above example from Malawi highlights another issue which is observed commonly amongst the poorest of the
poor borrowers, and that is the issue of fungibility. Fungibility is a greater risk to the borrower than the lender,
because most lending institutions are more concerned with the repayment than what the borrower actually did with
the credit. Therefore, as a group the poorest of the poor are more prone to make use of available funds where the
need is the most, and it was observed that this group is also more likely to be exposed to vulnerability shocks.

This pattern of loan management and strategic use of the loan is typical of female clients who borrow very small
amounts to survive, for example, an agriculture season. Field discussions with some MFIs in Ethiopia shows that at
the beginning of every agriculture season, female clients have the same pattern in accessing credit and completing
repayment during harvesting. Since the clients are highly risk-averse they will borrow only the amount that will get
them through a critical period. They do not save from this amount and they do not generate any increased profits
from investments made in their economic activities. Thus within the poverty reduction framework micro-credit
delivered in this form and to groups characterised as poorest of the poor, with only small amounts accessible does
not directly address the factors that are responsible for their continuous state of poverty. Micro-credit in this sense
manages to alleviate the immediate risk of hunger which may result from poverty. Within the women’s empowerment
framework, the micro- loan amount and the loan management process does not create the platform for any form of
negotiation in gender roles and/ or relation change. In order for the empowerment process to occur it would have
been necessary for the micro-credit to enable the generation of sustainable income and observable physical change
in the household vis-à-vis health, nutrition, etc. Thus, the poverty alleviation-micro-finance and gender process, as
explained by Mayoux (2000), did not occur in the cases studied in Malawi or Ethiopia.

Interest rates

During the early phases of the ‘micro-credit movement’, one of the arguments for establishing special micro-credit
delivery institutions aimed at addressing the needs of the poorest of the poor, was the issue of interest rates. It was
argued that market interest rates were too high for the rural poor, especially the poor micro-entrepreneurs, female
petty traders and vendors, to afford. Thus it was considered one of the issues hindering satisfactory access and
increased outreach to the poor clients. These recognitions and the continued interest to fight poverty effectively
resulted in applying subsidies, or slightly lower interest rates than those on the market, which would make micro-
credit affordable but not entirely free. Since then new evidence shows that subsidised interest rates are actually
detrimental to the competitiveness and growth of the poor clients and would make them further dependant on ‘free
hand-outs’. The resulting outcome from these two consecutive evolutions has been that most MFIs charge market
interest rates. In addition, further administrative and risk premiums are also charged which result in MFI loans being
more expensive than commercial loans. While some commercial banks charged an interest rate of between 44% to
46% (data collected during May 2001) per annum in Malawi, MFIs were charging as much as 68% to 74% per
annum (also data collected during the same period). Nevertheless, the poorest of the poor may not be able to
access the commercial loans because of the non-flexible lending criteria of these big banks. Furthermore, because
commercial banks are not prepared logistically to service the needs of the poor clients for very small amounts, MFI
operations flourish based on comparatively expensive loans and taking advantage of the incompatibility of the
commercial bank services to the needs of the small borrowers. Consequently, micro-credit programmes charging
higher total interest rates actually may be contributing to the poverty status of the borrower.

The higher interest rates put an extra burden on the poor clients when repaying. Especially, because the
predicament is that while the client’s income may fluctuate depending on business, market and other external
environment related factors, she has to make the repayment at a fixed time or loose whatever collateral she has put
up. Thus, in order to make repayments, the borrower may dig deeper into her savings, profits, or other income
sources, such as from the husband or children’s work, resulting in increase in poverty at the household level. The
issue of the high interest rates reflect the financial self-sustainability paradigm as explained by Mayoux (2000) and
reconfirms the increased burden put on women for repayment of loans. Within the empowerment analysis, the high
interest rates and resulting high repayment rates puts more stress on the women to conform to existing gender roles
and relations because as noted in some cases in Malawi and Ethiopia, in order to meet the weekly repayments the
woman had to depend on the husband’s income. Furthermore, the high interest rates also had a negative impact on
the poverty reduction capacity of the micro-loan since it did not result in sufficient income levels.
Savings mobilisation

One of the more common requirements of most MFIs is to encourage savings amongst the clients so that they
develop an attitude of savings first and borrowing on that amount, and also to empower them, in the long term, to be
independent of borrowing from external sources. Savings requirement also represent a form of collateral and allow
the MFI to recover at least a small part of their outstanding loan in case of default. The issue of forced savings
mobilisation and linking it to eligibility to borrow may contribute to increased poverty. Field discussions in Malawi
reveal that most of the time the poorest of the poor do not have access to and cannot generate savings. Because a
potential client will resort to other means to put up the necessary “savings” in order to qualify for the loan, she may,
for example, borrow the money from the husband, making her further disempowered within the gender dimension.
She may borrow from an informal moneylender at exorbitant rates to qualify for a comparatively cheaper loan.
Therefore, field observations show that forced savings mobilisation, although meant to instigate a culture of saving
discipline, does not match the realities of socio-economic situation of the poorest of the poor. This, however, does
not deny the fact that voluntary savings, independent of loan eligibility, has become quite acceptable in many
communities in Malawi and Ethiopia.

Group Mobilisation

Another issue arising in the discussion of targeting clients is that of group dynamics and mobilisation. One of the
other features of micro-credit for the poor is the alternatives developed to collateral, namely group guarantees. Most
micro-credit delivery mechanisms, whether community based or business oriented, request clients to form into
groups in order to receive a loan. The group is meant to guarantee the individual borrower and to follow-up that the
individual makes repayments on time because the group is a stakeholder and would not receive further loans if the
individual defaults. In Malawi and Ethiopia, evidence from the field shows that groups form around people of similar
socio-economic and poverty characteristics. Also, in the majority of the cases groups are single sex; mixed groups
have to be established by conscious design. Furthermore, because men want and can receive bigger loans based
on physical assets or other forms of guarantee, they do not form into groups and usually qualify for individual loans.
Group formation and peer pressure mainly serve the interest of the MFI in ensuring repayments and cutting back on
their monitoring and follow-up costs.

Discussions with clients of MFIs in Malawi revealed that group lending methodology might not be the most suitable
alternative that it is claimed to be. The obstacle reported is that some clients are more active than other group
members, making their repayments promptly and at times even before the deadline. The difficulty arises for the
active client when she wants a second loan, which she cannot get until the first loan cycle is completed. Therefore,
those clients who cannot perform well and cannot meet the repayment deadlines delay the better-off clients from
getting further loans. Discussions with the credit groups revealed that the more active clients soon become
disillusioned by this process and drop-out of the credit programme altogether.

Targeting women – is this gender consciousness?

One of the important aims of MFIs is to reach women, and allow them access to resources which will empower
them. Empowerment, however, is an elusive concept and also relative, which cannot be proven to exist in a
standardised monitoring format (Pitamber, 1999). On the other hand it is true that many of the MFIs do reach
women, but this is not a direct targeting strategy.

Recent data from discussions and interviews of MFIs in Ethiopia (field discussions July 2002) have revealed that
many MFIs have above 50% female clientele. Although at the regional level female outreach is still weak, these
figures for MFI performance are impressive. However, further investigation revealed that the high female clientele
was not a direct targeting strategy in the interests of gender equity. Discussions revealed that women were simply
better clients than men. Credit officers from the interviewed MFIs explained that firstly women did not demand high
loan amounts, and therefore this did not pose a great risk for the MFI itself. Secondly, these women borrowers being
normally risk averse were always punctual with their repayments. Thirdly, because the women were aware that they
will need to borrow in the future from the same source they were very alert of the fact that they should maintain a
good record with the MFI. Therefore, for MFIs and other micro-credit delivery mechanisms focusing on women as
clients made better business sense and contributed to business profits and sustainability.

As mentioned earlier, MFIs are not necessarily welfare oriented and therefore they will promote those products
which fit the needs of their “best customers”. Women in this case have proven to be very good customers and
therefore those MFIs which have a majority female clientele do so not out of gender sensitive and equity promoting
mind-set. From a gender analytical framework, not all the MFIs or their staff are always capable of pursuing gender
equity strategies in their operations. Furthermore, the fact that more and more women are being targeted for micro-
finance outreach within existing standardised operations procedures and policy, may indicate that poverty amongst
women is likely to increase disproportionately, more so because of poverty implication of loan amounts, interest
rates, repayments, etc. as mentioned above.

MFI structural inconsistencies and mismatch for poverty reduction

Micro-credit for small economic activities, excluding actual agriculture production, can be considered as a ‘quick
money making business’. In Malawi, for example, field data shows that a majority of the MFIs operating are
internationally based. These MFIs may also have operations in other countries in the region using the same
methodology and credit delivery mechanisms, with only slight variations to match the country environment.
Repayments start immediately and are either made weekly or bi-monthly with a repayment period averaging four to
six months. Thus the end objective of each lending operation is mainly the recovery of the capital and interest and to
continue lending.

One of the other operations characteristics of MFIs is to provide training to first time clients on business
development, loan application requirements and repayment procedures. Again in Malawi, evidence from the field
discussions shows that many MFIs prefer to design their own training programmes and manuals. Thus, clients may
have been exposed to at least two or three different training programmes over a period of time. This eventually
complicates matters further for the borrowers who tend to develop an aversion to dealing with multiple MFIs.
Moreover, although the training is deemed important to introduce the discipline necessary, the MFIs do not always
have their own officers delivering the training. In Malawi, for example the community development agent (a field staff
of the Ministry of Gender, Youth, and Community Services) is recruited on an incentive payment basis to deliver the
training to the targeted groups on behalf of the MFI. These CDAs are already over-loaded because most donors
make use of them in order to deliver all kinds of services to the community level. Thus a CDA may be delivering two
or three different kinds of training, on different issues to different communities, the net time allocated for a particular
group may be an hour a week. This eventually makes a particular micro-credit training an extended duration of
about ten to twelve weeks. The result of this weakness in training delivery is that most of the time the actual credit
disbursement does not match the time of need for the credit.

Both in Malawi and Ethiopia, field evidence suggests that there is a phenomenon of territorial prejudices in MFI
operations. In Ethiopia the MFIs are themselves limited to a specific region by government regulation. In the case of
Ethiopia, this gives a particular MFI a monopoly advantage in the region and exclusive operations rights. This has a
negative impact on operations efficiency, competitiveness, and service quality for the end user clients. Discussions
from Malawi revealed that about five to eight years ago, differences in micro-credit delivery strategies resulted in
social inequalities and disruption. Some programmes pursued subsidised interest rates with a grace period, while
others followed market interest rates and immediate repayments. Thus it affected the social cohesion in the
communities because some households benefited from the cheaper loans while others had to pay more expensive
charges. Although, coordination in micro-credit delivery has improved since then, field evidence reinforces the
argument that MFIs in particular are not in a position to actually reduce poverty, rather they are in the business of
providing finance to those who qualify.

Concluding Remarks

One of the most important outcome of the analysis in this paper has been that while most MFI programmes aim to
reduce poverty and empower women through their programme, there is usually no clear implementation mechanism
to fulfil these aims; they continue to be programmes with the same requirements and characteristics. Furthermore,
one of the major constraints in the discussion of gender and micro credit is the inadequate and insufficient
participation of the female clients themselves in the design of the programmes. For example it would be better suited
to define what empowerment means to a certain group and then design the project to enable women to achieve this
empowerment level. Perhaps the second most important constraint is the insufficient empirical evidence from Africa.
The micro credit model most commonly replicated and known internationally was to a great extent born in South
East Asia and Bangladesh particularly. Thus, much of the research and studies on successes, failures, weaknesses
and opportunities of micro credit are measured with this framework and context in mind. This is a mismatch which is
most likely to brand the African experience to be “inadequate”.

Micro-credit programs have progressively increased over the last decades in Africa. In comparison, there is nearly
no convincing and/ or comprehensive evidence to show that poverty has been reduced sustainably amongst a
certain group of clients. Indicators such as repayment rates and “demand” for credit do not result in poverty
reduction; they simply mean that there is a “need”, as always, for more resources. Furthermore, repayments being
made simply indicates that the clients are in a position to payback, where and how they get that payback amount is
not scrutinised. Despite such evidence, micro-credit delivery programmes are on the rise, more than ever before. In
Malawi alone there are more than twenty nine micro-credit delivery programmes, projects and institutions. Donors
too are infatuated by micro-credit as the answer to all development problems. However, they view it from a supply
side scenario, and very little time is devoted to analyse ‘what kind of credit is desired’ by the potential clients.

One of the misconceptions amongst practitioners is that an MFI targets the ultimate poorest of the poor, the
landless, the assetless, and the destitute. However, the paper has demonstrated that for an MFI such a client profile
will not ensure returns and increase profits, and it is precisely such a beneficiary profile that is unattractive and
unlikely to become a potential client. The changing policy environment, thus, puts more pressure and competition for
the scarce resources between the poorest of the poor and the “not-so-poor”. This paper has highlighted the fact that
since development interventions put greater focus on, for example, export markets, trade promotion, and medium
scale farmers and entrepreneurs, the actual micro-credit clients are not the typical
‘hand-to-mouth’ poor.

The analysis in the paper has discussed the practices of MFIs as units in the business of delivering finance and
making profits or at least recovering investments and other costs. Through the analysis of the different features of
micro-credit, the paper has raised some questions and concerns on the absolute validity of micro-credit as a poverty
reduction mechanism. The factors analysed revealed that there are certain undesired effects of micro-credit delivery,
which may hinder the process of poverty reduction. The paper underscored the concern that in the present system,
micro-credit at best may help to reduce the depth of poverty of a client and that too for an unsustainable time period.
This paper, thus raises some preliminary analytical issues which should be considered carefully in future micro-credit
interventions for poverty reduction. Moreover, the analysis of the issues also provide an outline of some areas for
further investigations and research which can be both policy and action oriented.

Finally, the paper has highlighted the fact that the micro-finance industry and the development agents have become
too slow in responding to the changes occurring amongst the poorest of the poor. In this, the paper has shown that
most MFI programmes have been replicating the loan delivery mechanisms and strategies without critical evaluation
of the needs of the clients.

The paper has also questioned the assumption that MFIs through delivering credit empower women. Evidence from
the field has shown that many MFIs in both Ethiopia and Malawi do specifically target women as clients. However,
this is mainly due to the fact that the characteristics of these micro, short repayment period loans, are best suited to
female clients. But the empowerment process which is assumed to occur as a result of these loans, is impeded by
the micro size of the loan, the small returns from the use of the loan, and the fact that the returns themselves are still
not always the major contributor to the family income in the case where the husband is also earning an income.
However, it was also noted that some indicators of empowerment could be verified in the case where the woman
benefited from at least the fifth cycle of the micro-credit. In this case the accumulated benefits of the previous loans
and their incomes, as well as the increased experience of the female in managing the loan efficiently contributed to
her increased and autonomous decision-making powers in the household and the community affairs.

The paper has also demonstrated that the features that makes micro-credit ‘suitable’ for the poor are to a large
extent themselves responsible for the inability of the female clients to expand their businesses, or graduate to bigger
loans, and eventually be socially and economically empowered. These features create the environment which will
limit the female borrower to accessing the same kind and amount of loan whenever the need arises. Therefore, the
paper has indicated that in order to achieve poverty reduction through the micro-credit, the characteristics of such
micro- finance loans need to be reviewed and adjusted to the contextual needs of the poor, since the poor and in
particular women are not a homogenous group. Furthermore, the paper has demonstrated that empowerment is not
an automatic result of accessing micro-credit. Therefore, an empowerment process will only be initiated through
specific and targeted gender and empowerment training both for the MFI staff and for the female borrowers. For
example, it was seen that in the cases where such training was provided, in donor designed MFI programmes in
Malawi, women’s awareness to themselves, to their use of the income, as well as management of community and
other out-of-home affairs was much more effective and carried out with greater confidence, than otherwise was
verifiable.

The findings of this paper have certain implications for the design of future micro-credit interventions for poverty
reduction as well as gender and empowerment. Firstly, proposed micro- credit interventions should undertake a
thorough investigation and invite the complete participation of the targeted communities and in particular record the
voice of the women. Most rural communities in Africa do practice some type of micro-credit lending and repayment,
whether it is an informal rotating savings group, or with the informal money lender, or any other form unique to a
specific context. Therefore, new and more formal micro-credit interventions will be able to learn a lot and as well
improve efficiency in targeting the clients, initiating an empowerment process, and as well as reducing poverty by
understanding and including local knowledge and best practices. Furthermore, more emphasis should be put on
identifying the poor and their life characteristics in order that the programme meets their specific needs. Secondly,
each new intervention should develop and include a set of monitoring indicators on the performance of the micro-
credit programme vis-à-vis poverty reduction and gender and empowerment process; these indicators should be
identified by the target clients and communities. Furthermore, the intervention should include a mechanism which
will allow changes and modifications to be made in the programme when the implementation does not meet targeted
and planned indicators. Thirdly, gender roles and empowerment sensitisation training should be a standard
compulsory activity in all micro-credit delivery programmes. Last but not least, micro-credit programmes, because of
their potential for wide rural outreach, should be used as a platform to address major development challenges which
may have a negative impact on the performance and progress of the micro- credit loans by clients. These
challenges are mainly, raising awareness and mitigating the spread and impact of HIV/ AIDS in a targeted
community, and designing a programme activity on providing functional literacy and alphabetisation.

Recommendations for future research

In light of the conclusions drawn above, there is a need for further policy and action oriented research and in-depth
investigation. First and foremost, there is a need for extensive empirical evidence to verify and ascertain the
capabilities of micro-credit in reducing the depth and scope of poverty. Specific attention, investigation and analysis
needs to be given to the characteristics of micro-credit delivery mechanisms and strategies that are in existing
practice. In this, there is a need to investigate and identify innovative approaches to micro-credit delivery that will
reduce poverty sustainably. In addition, there is a need to analyse the features and characteristics of micro-credit
within a gender and empowerment framework, and to question the extent to which access to credit and income
generated thereof gives women in rural Africa the power and confidence to negotiate gender sensitive division of
labour, roles, authority and decision-making autonomy.

Furthermore, based on the observation that profit oriented MFIs have a better outreach in the rural areas, there is a
need to further investigate and integrate poverty reduction mechanisms and strategies within existing MFI structures.
In this regard, further investigation can be carried out to establish viability of means and ways to place greater
demonstrated accountability for social and economic poverty reduction on the MFI together with the government.

On a more macro level there is a need to analyse the poverty reduction and economic growth trade-off when
targeting the ‘not-so-poor’ versus targeting the ‘poorest of the poor’ within the micro-credit industry and framework.
In this, specific attention can be given to the debate on providing relief and/ or grants to achieve meaningful poverty
reduction.

Last but not least, there is a need to identify possibilities of merging the positive aspects of commercial banking,
such as the comparatively lower interest rates, with the advantages offered by the MFI, such as satisfying the needs
of the micro-borrower, whereby allowing borrower to have maximum benefit in the process of poverty reduction.
Therefore, empirical evidence and case studies analysis should be carried out to understand clearly the differences
and similarities of these two forms of institutions and where they can come together for effective poverty reduction
and empowerment of the poor.

Note and References

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